Business secretary Jacob Rees-Mogg launched plans for a cap on revenues of low-carbon electricity generators, in what the industry said was a “de-facto windfall tax”.
It plans to introduce a temporary “cost-plus revenue limit” - part of a broader energy support package - to break the link between high gas prices and the amount made by all electricity producers.
How will the cap work?
The Government announced the proposed cap as part of its Energy Prices Bill - which will give it new emergency powers to carry out the proposals - but has provided very little detail about how it would work. It said the “precise mechanics will be subject to a consultation launched shortly”.
Earlier this year, MPs approved a 25% windfall tax on oil and gas producers in the North Sea. Labour has been pushing for a bigger windfall tax to fund a freeze on energy bills, however the Prime Minister Liz Truss has firmly ruled that out.
What has been said of the cap?
Leaders in the energy sector warned the mechanism must not put off investment and should be comparable to other countries. Dhara Vyas, Energy UK’s director of advocacy, said they welcomed the Bill as “much-needed support” for millions of households and businesses.
“However, we must be sure that the proposed mechanism does not risk the very investment the UK needs to ensure long-term, sustainable economic growth,” she said. “We look forward to continuing to work with Government to ensure that any new mechanism is introduced in a way that encourages investment in low carbon generation, rather than deterring it.”
RWE UK Country Chair Tom Glover said the cap was a “de-facto windfall tax on low-carbon generators”. Ed Miliband, Labour’s shadow climate and net zero secretary, said: “The government has finally accepted the principle of Labour’s call for a windfall tax on excess profits of electricity generators. After months of telling the country they were utterly opposed to the principle of a windfall tax, they have been dragged kicking and screaming to implement it. Yet again this shows Labour leading the agenda in British politics with another screeching U-turn from a government in office but not in power.”
Dan McGrail, chief executive of RenewableUK, said the move risks “skewing investment towards the fossil fuels that have caused this energy crisis”.
He said: “We are concerned that a price cap will send the wrong signal to investors in renewable energy in the UK. A price cap acting as a 100% windfall tax on renewables’ revenue above a certain level, while excess oil and gas profits are taxed at 25%, risks skewing investment towards the fossil fuels that have caused this energy crisis.”
Mr McGrail also said that the EU’s proposed price cap is already causing “investor turmoil” in the European market, while the UK needs to attract £175bn in investment for wind power this decade.
He said the Government must ensure the cap is set at a level that still makes the UK more attractive to investors than the EU, has and planned endpoint and is technology neutral. Meanwhile, an SSE spokesman said the “key lesson” of the current energy crisis is the need to bolster homegrown energy defences.
They said: “Any revenue cap must be set at a level that doesn’t discourage essential investment in the UK’s renewable energy sector and therefore should be comparable to other countries, particularly given the 180 euros cap being implemented by the EU”
“It is also vital that the cap does not negatively impact on the security of supply this winter, therefore flexible technologies, such as hydro, that require strong price signals to meet demand when most needed should be excluded.
“We will now work with the Government on the details of the policy to ensure it meets its objective of addressing extraordinary profits without throwing away the UK’s global leadership position on renewable energy investment”.
National World has contacted the Government for a comment.